17. Supplemental Condensed Consolidating Financial Information

Pursuant to the indentures governing Arch Coal, Inc.’s senior notes, certain wholly-owned subsidiaries of the Company have fully and unconditionally guaranteed the senior notes on a joint and several basis. The following tables present condensed consolidating financial information for (i) the Company, (ii) the issuer of the senior notes, (iii) the guarantors under the senior notes, and (iv) the entities which are not guarantors under the senior notes (Arch Western Resources, LLC and its subsidiaries, Arch Receivable Company, LLC and the Company’s subsidiaries outside the U.S.):

Condensed Consolidating Statements of Operations

Three Months Ended June 30, 2012


		Guarantor	Non-Guarantor
	Parent/Issuer	Subsidiaries	Subsidiaries	Eliminations	Consolidated
	(In thousands)

Revenues	$ –	$ 558,400	$ 505,138	$ –	$ 1,063,538

Costs, expenses and other
Cost of sales	2,288	458,214	442,387	(21,630)	881,259
Depreciation, depletion and amortization	1,345	93,254	38,270	(1)	132,868
Amortization of acquired sales contracts, net	–	(4,482)	31	–	(4,451)
Mine closure and asset impairment costs	–	525,690	72	–	525,762
Goodwill impairment	–	115,791	–	–	115,791
Selling, general and administrative expenses	21,774	2,700	12,392	(1,688)	35,178
Change in fair value of coal derivatives and coal trading activities, net	–	(32,054)	–	–	(32,054)
Other operating (income) expense, net	6,472	(35,930)	4,308	23,319	(1,831)

	31,879	1,123,183	497,460	-	1,652,522

Income from investment in subsidiaries	(553,007)	–	–	553,007	–

Income (loss) from operations	(584,886)	(564,783)	7,678	553,007	(588,984)
Interest expense, net:
Interest expense	(89,740)	(1,198)	(8,809)	21,019	(78,728)
Interest income	6,309	159	15,639	(21,019)	1,088
	(83,431)	(1,039)	6,830	-	(77,640)

Other non-operating expense
Bridge financing costs related to ICG	-	-	-	-	-
Net loss resulting from early retirement of ICG debt	(17,349)	–	(1,693)	–	(19,042)
	(17,349)	–	(1,693)	–	(19,042)

Income (loss) before income taxes	(685,666)	(565,822)	12,815	553,007	(685,666)
Benefit from income taxes	(250,242)	–	–	–	(250,242)

Net income (loss)	(435,424)	(565,822)	12,815	553,007	(435,424)
Less: Net income attributable to noncontrolling interest	(65)	–	–	–	(65)

Net income (loss) attributable to Arch Coal, Inc.	$ (435,489)	$ (565,822)	$ 12,815	$ 553,007	$ (435,489)

Total comprehensive income (loss)	$ (434,624)	$ (570,256)	$ 13,400	$ 553,007	$ (438,473)

Condensed Consolidating Statements of Operations

Six Months Ended June 30, 2012



		Guarantor	Non-Guarantor
	Parent/Issuer	Subsidiaries	Subsidiaries	Eliminations	Consolidated
	(In thousands)

Revenues	$ –	$ 1,057,129	$ 1,046,060	$ –	$ 2,103,189

Costs, expenses and other
Cost of sales	5,258	883,216	890,442	(46,786)	1,732,130
Depreciation, depletion and amortization	2,560	193,267	77,009	(2)	272,834
Amortization of acquired sales contracts, net	–	(17,683)	(785)	–	(18,468)
Mine closure and asset impairment costs	–	525,690	72	–	525,762
Goodwill impairment	–	115,791	–	–	115,791
Selling, general and administrative expenses	40,418	4,686	24,437	(3,502)	66,039
Change in fair value of coal derivatives and coal trading activities, net	–	(35,667)	–	–	(35,667)
Other operating (income) expense, net	3,360	(73,629)	(350)	50,290	(20,329)

	51,596	1,595,671	990,825	-	2,638,092

Income from investment in subsidiaries	(475,692)	–	–	475,692	–

Income (loss) from operations	(527,288)	(538,542)	55,235	475,692	(534,903)
Interest expense, net:
Interest expense	(171,837)	(2,377)	(20,152)	40,866	(153,500)
Interest income	11,138	405	31,432	(40,866)	2,109
	(160,699)	(1,972)	11,280	-	(151,391)

Other non-operating expense
Bridge financing costs related to ICG	-	-	-	-	-
Net loss resulting from early retirement of debt	(17,349)	–	(1,693)	–	(19,042)
	(17,349)	–	(1,693)	–	(19,042)

Income (loss) before income taxes	(705,336)	(540,514)	64,822	475,692	(705,336)
Benefit from income taxes	(272,902)	–	1,581	–	(271,321)

Net income (loss)	(432,434)	(540,514)	63,241	475,692	(434,015)
Less: Net income attributable to noncontrolling interest	(268)	–	–	–	(268)

Net income (loss) attributable to Arch Coal, Inc.	$ (432,702)	$ (540,514)	$ 63,241	$ 475,692	$ (434,283)

Total comprehensive income (loss)	$ (430,676)	$ (543,015)	$ 68,235	$ 475,692	$ (429,764)

Condensed Consolidating Statements of Operations

Three Months Ended June 30, 2011


		Guarantor	Non-Guarantor
	Parent/Issuer	Subsidiaries	Subsidiaries	Eliminations	Consolidated
	(In thousands)

Revenues	$ –	$ 419,895	$ 565,633	$ –	$ 985,528

Costs, expenses and other
Cost of sales	4,940	288,172	447,707	(25,229)	715,590
Depreciation, depletion and amortization	659	56,062	40,516	(1)	97,236
Amortization of acquired sales contracts, net	–	(4,340)	5,602	–	1,262
Mine closure and asset impairment costs	–	–	–	–	–
Goodwill impairment	–	–	–	–	–
Selling, general and administrative expenses	18,600	3,171	9,104	(1,835)	29,040
Change in fair value of coal derivatives and coal trading activities, net	–	2,672	–	–	2,672
Acquisition and transition costs related to ICG	48,666	–	–	–	48,666
Other operating (income) expense, net	(4,831)	(29,248)	2,722	27,065	(4,292)

	68,034	316,489	505,651	-	890,174

Income from investment in subsidiaries	165,368	–	–	(165,368)	–

Income from operations	97,334	103,406	59,982	(165,368)	95,354
Interest expense, net:
Interest expense	(48,033)	(2,135)	(10,962)	18,881	(42,249)
Interest income	4,309	136	15,191	(18,881)	755
	(43,724)	(1,999)	4,229	-	(41,494)

Other non-operating expense
Bridge financing costs related to ICG	(49,490)	-	-	-	(49,490)
Net loss resulting from early retirement of debt	-	(250)	-	-	(250)
	(49,490)	(250)	-	-	(49,740)

Income before income taxes	4,120	101,157	64,211	(165,368)	4,120
Benefit from income taxes	(2,510)	–	–	–	(2,510)

Net income	6,630	101,157	64,211	(165,368)	6,630
Less: Net income attributable to noncontrolling interest	(318)	–	–	–	(318)

Net income attributable to Arch Coal, Inc.	$ 6,312	$ 101,157	$ 64,211	$ (165,368)	$ 6,312

Total comprehensive income (loss)	$ 20	$ 102,245	$ 61,105	$ (165,368)	$ (1,998)

Condensed Consolidating Statements of Operations

Six Months Ended June 30, 2011


		Guarantor	Non-Guarantor
	Parent/Issuer	Subsidiaries	Subsidiaries	Eliminations	Consolidated
	(In thousands)

Revenue	$ –	$ 758,429	$ 1,100,037	$ –	$ 1,858,466

Costs, expenses and other
Cost of sales	8,219	540,057	871,030	(50,032)	1,369,274
Depreciation, depletion and amortization	1,331	99,341	80,101	–	180,773
Amortization of acquired sales contracts, net	–	(4,340)	11,546	–	7,206
Mine closure and asset impairment costs	–	–	–	–	–
Goodwill impairment	–	–	–	–	–
Selling, general and administrative expenses	38,936	5,053	19,017	(3,532)	59,474
Change in fair value of coal derivatives and coal trading activities, net	–	888	–	–	888
Acquisition and transition costs related to ICG	48,666	–	–	–	48,666
Other operating (income) expense, net	(9,398)	(56,702)	7,129	53,564	(5,407)

	87,754	584,297	988,823	-	1,660,874

Income from investment in subsidiaries	290,370	–	–	(290,370)	–

Income from operations	202,616	174,132	111,214	(290,370)	197,592
Interest expense, net:
Interest expense	(88,654)	(2,849)	(21,944)	36,618	(76,829)
Interest income	8,052	432	29,635	(36,618)	1,501
	(80,602)	(2,417)	7,691	–	(75,328)

Other non-operating expense
Bridge financing costs related to ICG	(49,490)	-	-	-	(49,490)
Net loss resulting from early retirement of debt	-	(250)	-	-	(250)
	(49,490)	(250)	-	-	(49,740)

Income before income taxes	72,524	171,465	118,905	(290,370)	72,524
Provision for income taxes	10,020	–	–	–	10,020

Net income	62,504	171,465	118,905	(290,370)	62,504
Less: Net income attributable to noncontrolling interest	(591)	–	–	–	(591)

Net income attributable to Arch Coal, Inc.	$ 61,913	$ 171,465	$ 118,905	$ (290,370)	$ 61,913

Total comprehensive income	$ 66,392	$ 172,495	$ 114,056	$ (290,370)	$ 62,573

Condensed Consolidating Balance Sheets

June 30, 2012


		Guarantor	Non-Guarantor
	Parent/Issuer	Subsidiaries	Subsidiaries	Eliminations	Consolidated
	(In thousands)
Assets
Cash and cash equivalents	$ 400,698	$ 360	$ 111,469	$ –	$ 512,527
Restricted cash	5,740	-	-	–	5,740
Receivables	47,525	23,006	330,188	(3,214)	397,505
Inventories	–	232,126	222,965	–	455,091
Other	96,561	88,695	12,408	–	197,664
Total current assets	550,524	344,187	677,030	(3,214)	1,568,527

Property, plant and equipment, net	29,658	5,891,377	1,476,096	–	7,397,131

Investment in subsidiaries	8,337,749	–	–	(8,337,749)	–
Intercompany receivables	(1,195,860)	(212,975)	1,408,835	–	–
Note receivable from Arch Western	675,000	-	-	(675,000)	–
Other	189,359	783,012	15,909	–	988,280
Total other assets	8,006,248	570,037	1,424,744	(9,012,749)	988,280
Total assets	$ 8,586,430	$ 6,805,601	$ 3,577,870	$ (9,015,963)	$ 9,953,938

Liabilities and Stockholders' Equity
Accounts payable	$ 29,584	$ 157,281	$ 129,804	$ –	$ 316,669
Accrued expenses and other current liabilities	64,302	157,977	148,818	(3,214)	367,883
Current maturities of debt and short-term borrowings	20,100	860	90,300	–	111,260
Total current liabilities	113,986	316,118	368,922	(3,214)	795,812
Long-term debt	4,462,255	2,396	(300)		4,464,351
Note payable to Arch Coal	-	–	675,000	(675,000)	-
Asset retirement obligations	776	153,423	270,090	–	424,289
Accrued pension benefits	22,737	3,781	22,522	–	49,040
Accrued postretirement benefits other than pension	12,697	6,272	23,059	–	42,028
Accrued workers' compensation	27,675	47,780	6,917	–	82,372
Deferred income taxes	653,534	76,961	-	–	730,495
Other noncurrent liabilities	150,350	41,016	31,765	–	223,131
Total liabilities	5,444,010	647,747	1,397,975	(678,214)	6,811,518
Redeemable noncontrolling interest	17,500	–	–	–	17,500
Stockholders' equity	3,124,920	6,157,854	2,179,895	(8,337,749)	3,124,920
Total liabilities and stockholders' equity	$ 8,586,430	$ 6,805,601	$ 3,577,870	$ (9,015,963)	$ 9,953,938

Condensed Consolidating Balance Sheets

December 31, 2011


		Guarantor	Non-Guarantor
	Parent/Issuer	Subsidiaries	Subsidiaries	Eliminations	Consolidated
	(In thousands)
Assets
Cash and cash equivalents	$ 61,375	$ 332	$ 76,442	$ –	$ 138,149
Restricted cash	10,322	-	-	–	10,322
Receivables	65,187	22,037	383,572	(1,617)	469,179
Inventories	–	207,050	170,440	–	377,490
Other	81,732	83,122	22,780	–	187,634
Total current assets	218,616	312,541	653,234	(1,617)	1,182,774
Property, plant and equipment, net	21,241	6,403,658	1,524,251	–	7,949,150

Investment in subsidiaries	8,805,731	–	–	(8,805,731)	–
Intercompany receivables	(1,457,864)	7,010	1,450,854	–	–
Note receivable from Arch Western	225,000	-	-	(225,000)	–
Other	184,266	884,613	13,156	–	1,082,035
Total other assets	7,757,133	891,623	1,464,010	(9,030,731)	1,082,035
Total assets	$ 7,996,990	$ 7,607,822	$ 3,641,495	$ (9,032,348)	$ 10,213,959

Liabilities and Stockholders' Equity
Accounts payable	$ 25,409	$ 175,196	$ 183,177	$ –	$ 383,782
Accrued expenses and other current liabilities	75,133	115,685	166,834	(1,617)	356,035
Current maturities of debt and short-term borrowings	172,564	1,987	106,300	–	280,851
Total current liabilities	273,106	292,868	456,311	(1,617)	1,020,668
Long-term debt	3,308,674	2,652	450,971		3,762,297
Note payable to Arch Coal	-	–	225,000	(225,000)	-
Asset retirement obligations	877	140,861	305,046	–	446,784
Accrued pension benefits	19,198	4,203	24,843	–	48,244
Accrued postretirement benefits other than pension	13,843	6,271	22,195	–	42,309
Accrued workers' compensation	17,272	48,111	6,565	–	71,948
Deferred income taxes	621,483	355,270	-	–	976,753
Other noncurrent liabilities	152,963	64,795	37,624	–	255,382
Total liabilities	4,407,416	915,031	1,528,555	(226,617)	6,624,385
Redeemable noncontrolling interest	11,534	–	–	–	11,534
Stockholders' equity	3,578,040	6,692,791	2,112,940	(8,805,731)	3,578,040
Total liabilities and stockholders' equity	$ 7,996,990	$ 7,607,822	$ 3,641,495	$ (9,032,348)	$ 10,213,959

Condensed Consolidating Statements of Cash Flows

Six Months Ended June 30, 2012


		Guarantor	Non-Guarantor
	Parent/Issuer	Subsidiaries	Subsidiaries	Eliminations	Consolidated
	(In thousands)

Cash provided by (used in) operating activities	$ (139,288)	$ 221,019	$ 13,577	$ -	$ 95,308
Investing Activities
Change in restricted cash	4,582	-	-	-	4,582
Capital expenditures	(3,973)	(160,423)	(37,677)	-	(202,073)
Proceeds from dispositions of property, plant and equipment	–	985	21,566	-	22,551
Purchases of investments and advances to affiliates	(3,683)	(6,992)	-	1,383	(9,292)
Additions to prepaid royalties	–	(5,187)	(3,447)	-	(8,634)
Cash used in investing activities	(3,074)	(171,617)	(19,558)	1,383	(192,866)
Financing Activities
Contributions from parent	-	1,383		(1,383)	–
Proceeds from term note	1,386,000	–	-	-	1,386,000
Payments to retire debt	-	(1,383)	(451,271)	-	(452,654)
Net decrease in borrowings under lines of credit and commercial paper program	(391,300)	–	–	-	(391,300)
Net payments on other debt	(11,164)	–	–	-	(11,164)
Debt financing costs	(34,335)	–	(46)	-	(34,381)
Dividends paid	(29,696)	–	–	-	(29,696)
Issuance of common stock under incentive plans	5,131	–	–	-	5,131
Transactions with affiliates, net	(442,951)	(49,374)	492,325	-	–
Cash provided by (used in) financing activities	481,685	(49,374)	41,008	(1,383)	471,936
Increase in cash and cash equivalents	339,323	28	35,027	-	374,378
Cash and cash equivalents, beginning of period	61,375	332	76,442	-	138,149
Cash and cash equivalents, end of period	$ 400,698	$ 360	$ 111,469	$ -	$ 512,527

Condensed Consolidating Statements of Cash Flows

Six Months Ended June 30, 2011


		Guarantor	Non-Guarantor
	Parent/Issuer	Subsidiaries	Subsidiaries	Eliminations	Consolidated
	(In thousands)

Cash provided by (used in) operating activities	$ (109,358)	$ 278,596	$ 144,962	$ -	$ 314,200
Investing Activities
Acquisition of ICG, net of cash acquired	(2,910,380)	-	-	-	(2,910,380)
Change in restricted cash	(74,814)	-	-	-	(74,814)
Capital expenditures	(2,459)	(65,927)	(39,339)	-	(107,725)
Proceeds from dispositions of property, plant and equipment	–	1,315	96	-	1,411
Purchases of investments and advances to affiliates	(725,938)	(27,058)	-	714,937	(38,059)
Additions to prepaid royalties	–	(21,440)	(3,772)	-	(25,212)
Cash used in investing activities	(3,713,591)	(113,110)	(43,015)	714,937	(3,154,779)
Financing Activities
Proceeds from the issuance of senior notes	2,000,000	–	-	-	2,000,000
Proceeds from the issuance of common stock, net	1,249,407	–	-	-	1,249,407
Contributions from parent	-	714,937	-	(714,937)	-
Payments to retire debt	-	(307,984)	-	-	(307,984)
Change in restricted cash	-	(260,663)	-	-	(260,663)
Net (increase) decrease in borrowings under lines of credit and commercial paper program	360,000	–	(56,904)	-	303,096
Net payments on other debt	(8,845)	–	–	-	(8,845)
Debt financing costs	(112,326)	–	(8)	-	(112,334)
Dividends paid	(34,192)	–	–	-	(34,192)
Issuance of common stock under incentive plans	846	–	–	-	846
Transactions with affiliates, net	363,696	(309,706)	(53,990)	-	-
Cash provided by (used in) financing activities	3,818,586	(163,416)	(110,902)	(714,937)	2,829,331
Increase (decrease) in cash and cash equivalents	(4,363)	2,070	(8,955)	-	(11,248)
Cash and cash equivalents, beginning of period	13,713	64	79,816	-	93,593
Cash and cash equivalents, end of period	$ 9,350	$ 2,134	$ 70,861	$ -	$ 82,345